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Starbucks curbs 2017 revenue forecast after US store visits drop

Fri, Jan 27, 2017 - 7:51 AM

Starbucks Corp on Thursday trimmed its full-year revenue forecast and reported a weaker-than-expected rise in quarterly sales at established restaurants in its Americas region, sending shares down 3.8 per cent in extended trade.

PHOTO: AFP

[LOS ANGELES] Starbucks Corp on Thursday trimmed its full-year revenue forecast and reported a weaker-than-expected rise in quarterly sales at established restaurants in its Americas region, sending shares down 3.8 per cent in extended trade.

The world's biggest coffee seller said visits to US stores, the heart of the Americas region, were down in a sign the company may be succumbing to the stubborn slump bedeviling the broader restaurant industry.

Starbucks Chief Operating Officer Kevin Johnson told Reuters the disappointing Americas results were primarily due to operational challenges caused by congestion at drink pickup sites after the number of cafes reaping more than 20 per cent of transactions from mobile order and pay doubled to 1,200 during the fiscal first quarter, which ended Jan 1.

Chief Executive Howard Schultz said on a conference call: "This is a great problem to have and a problem that we know how to solve. This is not rocket science."

US same-store sales were also up 3 per cent, driven exclusively by higher spending, while the actual number of transactions was down. Starbucks recently changed its loyalty programme to focus on dollars spent rather than transactions. Adjusting for that change, Starbucks said traffic was flat.

The Seattle company forecast 2017 revenue growth of 8 to 10 per cent, down from prior call for a double-digit rise.

Mr Johnson, the COO, also pinned some blame on macroeconomic weakness that is causing pain throughout the restaurant industry.

Revenue in the fiscal first quarter of US$5.7 billion was shy of the US$5.8 billion average target of analysts compiled by Thomson Reuters I/B/E/S. Adjusted earnings per share of 52 US cents met expectations.

"We view this as a reminder that, despite (Starbucks') relative consistency and outperformance vs peers, it isn't completely immune to a meaningful deterioration in retail traffic," Stephens analyst Will Slabaugh said in a client note.

The Americas region contributed 62 per cent of Starbucks'total net revenue in the latest fiscal year.

Much of that came from the United States, where Starbucks and other chains have been battling direct rivals as well as unusually low grocery prices.